Japan’s yen crisis exposes the long‑running failure of the Keynesian strategy that has dominated the country’s economic policy: chronic deficits, exploding public debt, and engineered inflation are now eroding Japan’s purchasing power, competitiveness, and monetary stability.
For decades, many mainstream analysts pointed to Japan as proof that a rich, “monetarily sovereign” country could keep an extremely high public debt without relevant consequences. The argument was simple: as long as the state can issue its currency, it can always print whatever is needed to cover deficits, refinance debt, and support public spending.
In reality, that has meant public debt soaring to around 250% of GDP, one of the highest levels in the developed world, while repeatedly increasing government expenditure and leaving large, persistent deficits. Even the IMF notes that, even after several years of moderate growth, prudence is “key to keep debt‑to‑GDP on a firmly downward path,” admitting that the current level is a structural vulnerability.
Japan’s apparent stability depended on a crucial external factor, the country’s enormous exporting capacity.
As a leading exporter of cars, technology, and capital goods, the country attracted a continuous inflow of US dollars and foreign capital that supported a stable currency and kept inflation low, despite fiscal excess. That protective layer is eroding fast. Headline inflation has edged up from 1.4%
